Warsh holds rates steady, but Fed dot plot now prices September hike

The Federal Reserve left interest rates unchanged Wednesday in Kevin Warsh's debut meeting as chairman, but the accompanying projections showed a notable shift: a majority of Fed officials now anticipate raising rates at least once before year-end, with traders pricing September as the most likely window. The hold was expected. The hawkish tilt in the dot plot was not.

Warsh is inheriting a central bank in the middle of a renewed inflation surge that has erased any path to rate cuts in 2025. According to Axios, the new projections reflect that reality, with many top officials penciling in a rate increase this year. Reuters reported that the shift triggered an immediate bond-market rout, with Treasury yields climbing across the curve as investors repriced the terminal rate and the duration of restrictive policy.

The meeting also signaled that Warsh intends to reshape how the Fed conducts monetary policy in the months ahead. Axios noted that he flagged "significant changes" to the central bank's operational framework, though specifics were not detailed. Connect CRE characterized the overall message as blunt: the Fed is not pivoting, and inflation is still the primary threat.

Meanwhile, oil markets moved in the opposite direction. Reuters reported that crude prices fell as supply began moving through the Strait of Hormuz again, easing fears of a prolonged disruption. Separately, Switzerland confirmed that talks between Iran and the United States are scheduled for Friday, a potential de-escalation that could further stabilize energy flows. That divergence—hawkish Fed, easing oil—sets up a tension between policy tightening and one of inflation's most volatile inputs rolling over.